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How expensive is an online stock broker?
Larissa Fernand |
October 19, 2005
Part I: Want an online stock broker?
Online trading is a boon for those who want to avoid the hassle of personally dealing with a broker. It's an Internet based trading facility that allows you to buy and sell shares through an online broker.
In the real world (as against the cyber world), you talk to your broker over the phone or personally (you could even fax him) and, accordingly, he buys and sells shares for you.
Once you join an online trading site, you can buy and sell through the stockbroker's Web site.
Yesterday, we checked out the responsiveness of online broking firms in Want an online stock broker?
Today, we tell you what costs to expect when dealing with them.
Account opening costs
All players charge an account opening fee; this is a one-time payment.
Generally, none of them charge an annual account maintenance fee since they make their money via brokerage. This is the fee they levy every time you buy or sell shares.
The fee varies; for instance, ICICI Direct charges Rs 750 while India Infoline charges Rs 425.
Types of accounts
Sometimes, the cost of opening the account is based on the software provided.
Most players offer two types of accounts: a browser-based one and a software based one.
5 paise calls the latter TT5 (Trader Terminal 2005), Motilal Oswal and InvestSmart refer to it as the EXE package, India Bulls terms it Power Indiabulls.
The software-based option is much quicker; you don't have to refresh the page and wait for it to get uploaded, which is what happens in the browser-based option.
The software option offers a wealth of information by way of intra-day charts (this tracks the price movement of the stocks), technical analysis (which gives you an idea of where the price of the stock is headed based on its price movement till date) and a host of other benefits.
Now, if you are trading (buying or selling shares) from your office, it may not make sense to opt for a software-based trading account. This will entail downloading the software on your PC. Besides, it will not work on a LAN, behind a firewall or behind a proxy (most offices use these options).
In this case, it makes sense to opt for the browser-based option. If you are trading from home on the other hand, consider the software based option.
In some cases, it may be more expensive to opt for the software package. For instance, Motilal Oswal charges Rs 1,500 for the EXE package but only Rs 500 for the browser based account. Opt for it only if you are an active stock market trader and need to capture quick price movements.
If you are an investor who buys shares, holds on to them and sells them at a later date, you could opt for a browser-based package.
Finally, if you travel a lot, you will not be able to access your software based trading account since it is downloaded on your PC. It is targeted at active stock traders who constantly buy and sell during the day.
Some will give you a direct percentage while others levy a fixed amount per Rs 100.
ICICI Direct charges 0.75% per transaction and India Infoline, 0.5%. Sharekhan charges 50 paise per Rs 100 and Motilal Oswal charges 40 paise per Rs 100.
When you compare the brokerage charges of different firms, always do so in percentage terms.
Let's say your transaction was worth Rs 100. ICICI Direct will charge you 0.75%, India Infoline 0.50%, Sharekhan 0.50% and Motilal Oswal 0.40%.
Also, check if the Service Tax and Securities Transaction Tax is passed on to you or if the broker picks up a portion of the tax.
A Service Tax of 10.2% is levied on the brokerage while a Securities Transaction Tax of 0.1% is levied on the total trade value.
Let's say you sold shares worth Rs 20,000.
Brokerage @ 0.75% on Rs 20,000 = Rs 150
Service tax @ 10.2% on Rs 150 = Rs 15.3
STT @ 0.1% on Rs 20,000 = Rs 20
Total payments made by you on Rs 20,000 = Rs 185.3
The above brokerage is for delivery based trades and decreases for intra-day trades.
A delivery based trade is when the investor buys shares with the idea of holding on to it and the shares are actually delivered to the buyer. Basically, it is a trade where the transaction ends in actual delivery of the stocks.
Intra-day trades are when you buy and sell the same stocks during the day. The transaction does not end in actual delivery but it is squared off. The net difference is paid by/ received by the customer at the end of the settlement.
To understand how day trading works, read about a day trader's experience in Greed = Loss at the stock market.
Sharekhan lowers its brokerage charges to 10 paise per Rs 100 of transactions for intra-day trades. Motilal Oswal charges 15 paise per Rs 100 for intra-day trades. India Infoline charges 0.10% for such trades. ICICI Direct keeps the rate constant but lowers the STT to 0.02% for intra-day trades.
Don't forget to check the minimum amount. ICICI Direct will levy the brokerage subject to the actual rate or Rs 25, whichever is higher. In other words, you must pay a brokerage of at least Rs 25. It drops to Rs 15 for intra-day trades.
With India Infoline, the minimum brokerage will be five paise per share.
Motilal Oswal asks for a commitment from the individual for a minimum brokerage of Rs 500 per month.
Gone are the days when shares were held as physical certificates. Today, they are held in an electronic form in dematerialised accounts, commonly referred to as demat accounts. To maintain your demat account, you will have to pay an annual fee.
ICICI Direct charges Rs 450 per annum as a depository fee; India Infoline charges Rs 250.
Sharekhan charges nothing for the first year, but charges Rs 500 for every year thereafter.
When deciding how to make your pick on monetary considerations, look at all the factors: account opening fee, annual demat fee and brokerage.
If you plan to trade actively, you should look at brokerage much more closely. The account opening fee will be a one-time payment, the demat fee an annual one but the brokerage will be ongoing.
Note: The examples are only indicative and not exhaustive. They do not cover every player in online broking. If you would like to check what the various players are offering, here are the website links.
What was your experience in interacting with online brokers? Would you like to share it with other readers? We would love to hear from you!
Part I: Want an online stock broker?
Tomorrow: What other factors to consider when opting for an online broking account
Illustration: Uttam Ghosh